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PARIS (Reuters) - The French government has issued a decree allowing it to block foreign takeovers of French firms in "strategic" sectors, throwing up a potential roadblock to General Electric's (GE.N) $16.9 billion bid for Alstom's (ALSO.PA) energy assets.
The decree, extending an existing 2005 law relating to the defense and other industries, was published in the official state gazette on Thursday and gives the state much-increased powers to block foreign takeovers in the energy, water, transport, telecoms and health sectors.
Any such acquisition will now need the approval of the Economy Minister, the decree published in France's Official Journal said.
The current minister, Arnaud Montebourg, has openly criticized the proposed Alstom-GE deal for fear of the impact on French jobs and prestige, and has instead advocated a European tie-up with Germany's Siemens (SIEGn.DE).
"With this new law, the risk that GE will reconsider its position increases, since additional concessions on a GE-Alstom deal will be sought by the French government to gain broader electorate support," Berenberg analysts said in a research note, adding it opened the door for an alternative deal with Siemens.
Alstom shares were down 1.1 percent to 29 euros at 0840 GMT, lagging a European blue-chip index .FTEU3 down 0.2 percent.
"With this reform, France will have a clear and efficient legal framework comparable to that in a number of other open economies within and outside Europe," Montebourg said in a statement.
"This new measure will of course be applied in a selective and proportionate manner, taking into account the merits of each situation," he said, adding the decree would take effect within 24 hours of publication.
The French government had not given any hint it was considering such a measure. It comes 10 days ahead of European Parliament elections in which President Francois Hollande's Socialists are expected to do badly due to a failure to tackle unemployment, and where the National Front - campaigning on a protectionist, anti-EU platform - is set to score big gains.
It also comes amid mounting concerns in other countries against foreign takeovers, with lawmakers in both Britain and Sweden expressing opposition to U.S. drugmaker Pfizer's (PFE.N) attempts to buy rival AstraZeneca (AZN.L).
Alstom has given itself until the end of the month to review its options. It was not immediately available for comment.
GE said it noted the decree and would continue to discuss its plans with the French government.
"Our project is good for Alstom, for its employees and for France," it said in an emailed statement, aiming to "build a world leading business in the energy sector with four bases in France, preserving and creating jobs."
Cash-strapped Alstom, which builds France's high-speed trains as well as power turbines and associated equipment, was bailed out by the French government a decade ago and is seen by many in France as an embodiment of its engineering prowess.
"This decree will smooth the way for talks with GE and Siemens and allow our demands to get more of a hearing," a source close to Montebourg said. The veto will not necessarily be used, the source added, but is aimed at giving France a seat at the table.
The source said France did not seek to block all foreign investments but to ensure strategic sectors are protected in the nation's interest.
Additional reporting by Lewis Krauskopf in New York; Writing by Michel Rose and Andrew Callus; Editing by Mark John and Mark Potter